Thought about yourself at 55? I didn’t either until I thought about buying a house and realized that inflation is steadily increasing and social security will diminish by the time our generation reaches retirement.
On top of that, as a 20something, you may be thinking “I’m broke af and Sallie Mae knows my phone number by heart, bro” which prompts you to ask, “How the hell I am going to buy a house or retire?”
Well here are some of the big secrets to saving that should help alleviate your concerns:
Step 1: Start saving now.
Start off reasonably, perhaps 5% of your income, and gradually increase based on how much money you’re making. If you have direct deposit, you can set up what percentages go where. Auto-allocate the percent you intend to save straight to your savings account and have the rest deposited into your checking account. Your pockets won’t really feel the hit if you don’t visually see it in your day to day account.
The key take away here is the purpose of a savings account is just that: to save and not spend, unless in the case of an emergency.
Step 2: Start thinking about retirement.
Some employers will offer 401k options and some won’t. But either way, you need a retirement fund. You may be thinking: that is years away, I’ll start saving later. That is the worst way of thinking about your finances. You need to take control today.
Choosing an option may sound complicated and you may think it would be difficult to sign up, so let me break down some of these options for you.
What to choose: IRA or Roth IRA?
The smarter option for many 20somethings will be to select a Roth IRA. Roth IRAs are beneficial as the money you put into this account is tax-free when you withdraw your money at 65. This is often a much better option than the conventional IRA, in which your funds could be considered income and therefore subject to income taxes. Another important distinction here is that Roth IRAs do not require you to distribute any of the funds during your lifetime (if you end up not needing them), while traditional IRAs require you to begin minimal distributions at age 70 1/2.
If your employer does not offer an IRA, go to your local credit union or bank to shop around for the best interest rate. Key word to look for here is compounding interest. This is money on top of money that continues to accrue interest. To give you an idea as you start exploring the options, one of the best interest rates out there would be 2.55%. Over the course of time, you can accumulate thousands of dollars while your money keeps building.
Step 3: Start to manage your debt now.
A simple way to start managing your debt is to set up auto-payments. In fact, most creditors offer discounts if you do sign up for auto-enrollment. So even if it’s just $25 a month, you will see the amount owed decrease over time. You have to start somewhere.
The most useful thing you can do is learn about your options so you can take action today. Trust me, your future self will thank you for it.
Image Source: SisterSaveAlot